European yields pushing higher

Could support the euro

Chart of the Day

One of the interesting developments in recent months is that, for all the talk of higher inflation in the US, bond yields have barely moved - the US 10-year rate is still lower than it was in March. Conversely, the 10-year yields across the eurozone have generally been rising. Over the past month, moves have ranged from a rise of 18bp in Germany to an increase of 31bp in France. Italy’s is now above 1% again. All this means longer-term yields have been moving in Europe’s favor, which could weigh on the USD/support the euro.

Macro

US initial jobless claims fell to 473,000 last week.

US producer price inflation also jumped in APril. It rose to 6.2%, while core PPI inflation increased to 4.2%.

Japan's economy watchers survey fell in April and has been very volatile lately as the country copes with the latest wave of Covid.

The Fed's balance sheet now stands at $7.83 trillion, up from $7.79 trillion four weeks ago.

The size of central bank balance sheets varies widely, with the Fed currently at 35% of GDP and the BoJ at 131%.

Markets

US yields generally fell yesterday despite the PPI data. The US 10-year yield has risen by 11 bp in the past week, the 5-year has risen by 4 bp and the 30-year has risen by 16 bp.

The rise in G4 yields more generally might not necessarily point to euro appreciation, but it is a potential reason why the euro seems unlikely to drop sharply any time soon.

Commodity prices have been weakening lately. Big question here whether this is the end of the rally we’ve seen so far this year.

A selection of assets that typify risk-on trades has been little changed this past week, much like an alternative selection that typify risk-off trades, though it is the risk-on group that has been grinding slowly high.

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